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By New_Deal_democrat January 3, 2015 2:10 pm
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Weekly Indicators: more of the same at the end of 2014 edition

Monthly December reports included positive consumer confidence, and positive but less so Chicago and ISM manufacturing.  The Case Shiller house prices report through October was neutral.  November construction spending was down, and December pending sales for houses turned positive.

I look at the high frequency weekly indicators because while they can be very noisy, they provide an up-to-this-week snapshot of the economy.  The indicators will confirm a trend or indicate a switch in trend well before monthly reports, and are a way to mark one's opinions to market on a regular basis.

As in the past few weeks, I am generally going in order of long leading, then short leading, then coincident indicators:

 Interest rates and credit spreads

  • 4.75% BAA corporate bonds up +0.03%
  • 2.24% 10 year treasury bonds up +0.10%
  • 2.51% credit spread between corporates and treasuries down -0.07%

Interest rates for corporate bonds made a low of 4.46% in November 2012. Treasuries fell to a possible once-in-a-lifetime low of 1.47% in July 2012, but rose to over 3% in late 2013.  In 2014, Treasuries started at just over 3% and declined over 0.8%, or more than 50% of that increase, at their lowest point.  Spreads remain above their expansion lows of a few months ago, a sign of weakness meriting extra attention, especially since the general trend in corporate yields since May, unlike Treasuries, has been flat rather than down.

Housing metrics

Home Sales and Prices from DataQuick:

  •  +2.8% sales YoY, up +0.4% (1 month rolling average) 
  •  +2.9% prices YoY, down +0.6% (1 month rolling average) 

YoY sales were positive for the seventh week in a row, while YoY median price comparison has declined slightly in the last four weeks. Since prices typically follow sales with a lag, and sales had been down, it is possible that we will see prices turn negative YoY in the next month or so.

Mortgage applications from the Mortgage Bankers Association:

  • No report this week

The big news of the last few months has been that YoY purchase applications have established a "less awful" trend, and almost turned positive YoY in the last few weeks.

Real estate loans, from the FRB H8 report:

  • Up +0.2% w/w
  • Up +3.2% YoY

Loans turned up at the end of 2011, but with higher interest rates, the comparisons rolled over and had been negative since April 2013.  They turned positive YoY in March 2014, and have remained positive to sharply positive since.

Money supply
M1

  • -0.3% w/w
  • +2.3% m/m
  • +7.7% YoY Real M1

M2

  • +0.1% w/w
  • +0.6% m/m
  • +4.3% YoY Real M2

At the time of the last flight to safety (from Europe) in January 2012, YoY Real M1 made a high of about 20%, and YoY Real M2 made a high of about 10.5%.  Growth in both then decelerated.  Real M2 made a new 2 year low at the beginning of 2014.  Both Real M1 and Real M2 improved substantially since, and both remain firmly in positive territory.

Employment metrics
 Initial jobless claims

  • 298,000 up +9,000
  • 4 week average 290,500 up +250

Initial claims remain well within the range of a normal economic expansion. The 4 week average remains very positive.

The American Staffing Association Index 

  •  down -1 to 106 w/w.  
  •   up +4.92% YoY.

This Index remained unusually high this week, but is strongly affected by seasonality. The YoY comparison has generally been positive to strongly positive since early spring.

Tax Withholding

  • $210.3 B for December vs. $195.0 B one year ago, up +$15.3 B or +7.8%
  • $185.8 B for the last 20 reporting days ending Wednesday vs. $175.8 B one year ago, up +$10.0 B or +5.7%

With the exception of one week, since July all readings have been positive.

Oil prices and usage

  • Oil down -$2.04 to $52.69 w/w
  • Gas down -$0.10 to $2.30 w/w
  • Usage 4 week average YoY +4.6%

The price of gas is now well past a 5 year low.  The 2010-2013 Oil choke collar has been broken.

Consumer spending 

  • ICSC unchanged w/w,  +2.2% YoY
  • Johnson Redbook +5.4% YoY
  • Gallup daily consumer spending 14 day average at $96 unchanged YoY

In 2013 the YoY range for the ICSC declined to between +1.5% and +3.0%, while Johnson Redbook YoY was between from +2% to a high over +4%.  While two of the three were quite positive this week, Gallup's moving average declined significantly in the last several days.

Steel production from the American Iron and Steel Institute 

  • -5.5% w/w
  • -2.3% YoY

Steel production over the last several years has generally been in a decelerating uptrend.  After a strongly positive move late in 2013, YoY comparisons turned negative again from January through early May, but then turned increasingly positive through August.  They then deteriorated and alternated between slightly positive and slightly negative.  They turned negative again this week after three weeks of positive YoY readings.

Transport
 Railroad transport from the AAR

  • +21,200 carloads up +9.2% YoY
  • +9,300 intermodal units up +5.4% YoY
  • +30,600 total loads up +7.6% YoY

Shipping transport

  • Harpex unchanged at 423
  • Baltic Dry Index down -11 to 771

Rail traffic is strongly positive again, after making a new all time high two weeks ago.  The BDI declined substantially since the end of last year, made an 8 month high, and for the last month has declined again. Harpex has been generally flat for the last few months.  In the longer term, shipping rates bottomed about 2 years ago and have been in a slow and variable uptrend since.

Bank lending rates

  • 0.219 TED spread up +0.0049 w/w
  • 0.171 LIBOR up +0.02 w/w

LIBOR has risen sharply from its post-recession low set in May to another one-year high. The TED spread has also moved generally sideways with a slight upward trend in the last 6 months after rising from its low of November of last year, it made a 1 year high this week. These need to be kept in perspective - compared to, e.g., 3 years ago, the needle has barely moved.
Commodity prices
JoC ECRI

  • Down -0.01 to 106.15 w/w
  • Down -16.07 YoY

BBG Industrial metals ETF

  • 123.05 down -0.75 to another 9 year low

Commodity prices continued cliff-diving for the fifth week in a row.  This is probably due to international weakness, and mainly about oil.  Because of that, I have included an industrial metals index.  Industrial metals were a component of ECRI's original short leading weekly index, and so can confirm or contrast with oil prices. Industrial metals had been declining for the last 3 years, then bottomed in March of 2014.  They rose through July, but then started to decline again, and in the last four weeks metals have fallen near their March low.

SUMMARY:

For the third week in a row, bond spreads, shipping, and commodities were negative, joined this week by mixed shipping and steel reports. LIBOR also spiked, although it remained well below its levels of even 2 years ago.

This week corporate bonds and treasuries reversed direction, with yields on both heading up, and spreads between them declining.  Spreads are still as slight negative. Money supply remains quite positive.  The MBA did not report mortgage applications this week, but house sales as reported by DataQuick were positive.

The short leading indicators continue to look strong, including jobless claims and temporary staffing, as well as gas prices and usage.  The exception is commodities, especially oil, but also including industrial metals, which continued to fall.

Coincident readings were very mixed. Two of the three measures of consumer spending were very positive, while the third was negative. Tax withholding was quite positive.  Steel and shipping were mixed, while rail remained strongly positive.

As 2014 ends, the story remains one of continuing global weakness, but continuing positives in the US economy.  In general the signs for the US economy for 2015 remain good, although the just-barely-positive advance of housing this year stands out as a contrary caution.

Have a nice weekend!

 

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